While still not legal at the federal level in the U.S., cannabis continues to take the investing community by storm.
Back in 2012, the cannabis sector was heating up thanks to legalization in states such as Colorado. Now, 18 states have legalized recreational use of marijuana, and Senate Majority Leader Chuck Schumer is pushing for legislation to decriminalize the weed.
Schumer's move would remove marijuana from the Controlled Substances Act and would introduce regulations to tax cannabis products.
When speaking to cannabis investors, the overall takeaway, not unsurprisingly, is that it's when cannabis is legalized, not if. Some investors even admitted that they're purely in the sector for profit, never having tried recreational marijuana before.
That includes retail investor Hal Lewis, who assured me that he's never been a user of cannabis though he lives in Florida. He explained his view saying, "If these companies can make huge profits with the current double-taxation 280e situation... and before it is even fully legal... they will go through the roof soon!"
And many investors are moving and adapting to find names within the sector that will not be as volatile as some of the "classic" cannabis names such as Tilray (TLRY) , Canopy Growth (CGC) and Cronos (CRON) .
How have these cannabis stocks performed? Year-to-date, only Tilray has stayed in the green, and it's up a whopping 58%. But in the past three months it's down over 12%.
Canopy Growth is lower by over 31% year-to-date, and Cronos has fallen 8%.
Companies like Aurora (ACB) , Tilray, Canopy, and Canada LPs are what the average investor thinks of when it comes to cannabis. But these companies will never sell products in the U.S. unless they acquire an MSO (multistate operator)/U.S. based firm.
So how are investors gaining exposure to the MSO space? One way is through (MSOS) , the AdvisorShares Pure US Cannabis ETF, which is down to $32 a share as of this week. Its 52-week high, which it hasn't hit since February, is $55.91
Back in April, Real Money's Tim Collins explained why these are attractive options for retail investors, writing, "We're overthinking cannabis investments. The United States is the market investors should hang their hat on. Yes, I believe there is a Canadian name and an international name to consider, but the multi-state operators in the U.S. have the biggest market and the biggest opportunity."
"My thinking is that the Canadian stocks are just internet meme stocks being played by kids on Robinhood," Hal Lewis told me. "I only invest in the MSO stocks in America... because as soon as we allow these companies to uplist to a real stock exchange (NASDAQ)... the institutional money is going to flow into them like crazy."
Real Money Pro's Doug Kass, author of the Daily Diary, still thinks there's an upside for this sector. Kass has written about cannabis multiple times recently.
"With few institutional owners, the cannabis space may now provide the best upside reward vs. downside risk of almost any market subsector," Kass noted.
And then he later backed that up saying that the "sharp drop" in the space coupled with Tilray's announcement that it had taken a majority position in privately held MedMen - subject to legalization - caused him to believe that there could be a "basis for an improving near term price action in the cannabis sector."
MSOS, outside of Kass's recommendation, is seen as an opportunity to get exposure to stocks that are not yet U.S. listed.
As one Twitter user said, "I want access to those companies that will be selling products in the U.S. market. MSOS provides that. Because of our [ridiculous] laws in the U.S...These companies have to be listed in Canada and traded OTC. Thankfully AdvisorShares (MSOS) put together a product that allows U.S. retail investors to have exposure to the greatest growth opportunity on the horizon."
"Recently more U.S. [cannabis] companies have been added to exchanges. I added positions in the MSOS ETF, Trulieve (TCNNF) , and Planet 13 (PLNHF) . I like the exposure these provide for me. Everything always seems overvalued in the short term but long term I think it's all cheap compared to the potential return in the future," said Josh Pitts, a retail investor.
Interestingly enough, for investors looking for a catalyst in this space, one Redditor posted on WallStreetBets that they think the events in Afghanistan could benefit the case for cannabis legalization in the United States.
"With...NATO leaving Afghanistan, drug production is likely going to increase. If the U.S. government takes no action, some of it is likely to flow to the U.S. This will inevitably put pressure on legalization. Would the U.S. government prefer its citizens to buy homegrown (and taxed) cannabis, or finance the Taliban regime by buying its cannabis?" u/quantricko wondered.
u/quanitricko cited a UN report from 2021 which stated: "Afghanistan appears to be the second most important source country of cannabis resin worldwide, accounting for 18% of all mentions of the main 'country of origin' in responses to the annual report questionnaire in the period 2015-2019."
But even if that theory doesn't pan out, retail investors from all backgrounds are willing to stay "couch-locked" in MSOS and the MSO names until legislation pulls through on Capitol Hill.